Li Ning Co., China’s largest maker and retailer of sportswear, fell in Hong Kong trading after saying first-half profit dropped by almost half and that it expects margins to narrow further.

Li Ning dropped 2.4 percent to HK$8.78 at 10:05 a.m. in Hong Kong, extending its slump this year to 47 percent, compared with a 14 percent decline in the Hang Seng Index. (HSI)

The clothier founded by former Olympic gymnast Li Ning yesterday said first-half net income plummeted 49 percent from a year earlier to 294 million yuan ($46 million) as costs and competition increased.

Higher prices for materials, labor and rents, as well as higher discounts for distributors, cut Li Ning’s profit margin to 6.8 percent in the six months ending June 30 from 12.9 percent a year earlier, it said in a filing to Hong Kong’s stock exchange.

The gross margin for the second half of this year will be lower than in the same period in 2010 and the margin on profit attributable to equity holders for the full year of 2011 is expected to narrow by about 1 to 2 percentage points, the company said.

China Dongxiang Group, Li Ning’s smaller domestic rival, yesterday said net income plummeted 71 percent to 225 million yuan in the first half. Xtep International Holdings (1368) Ltd., a Chinese sportswear maker part-owned by the Carlyle Group, last week said its first-half net income grew 25 percent to 466 million yuan.